Review from the Summit: Should You Acquire or Be Acquired?

Day 1 of the Summit continued with Hobson Hogan who is a member of FMI’s investment banking practice. He specializes in building products manufacturers and distributors, as well as other construction industry firms, focusing on mergers and acquisitions, ownership transfer issues and strategy development. He has an extensive background in finance, strategic planning, consulting and engineering. His experience provides him with an understanding of difficult organizational, operational and strategic issues facing the building and construction industry.

Due to the nature of the economy the topic of whether you should acquire another company or be acquired is highly relevant and a summary of what Mr. Hogan covered included:

  • Can your company be sold? If, so do you have competent management and are they a potential buyer?
  • The decision to sell is typically driven by outside forces: Health and/or personal issues, desire to retire, desire to focus on another business or poor financial performance.
  • Everyone is a seller at some point: You may not be alive to see it, but it will happen. The question is where are you in your personal journey – closer to the beginning or end.
  • Evaluate the opportunity to buy: At attractive valuations
  • Acquisitions should fit within overall strategic plan: Is it strategically driven or ego driven? Are you properly capitalized?
  • Strategy should drive acquisitions and your overall personal balance sheet should drive whether you are a seller
  • Investment in your company should be seen as part of personal balance sheet: Are you properly diversified? Is your risk appropriate for your age? Can you live off the proceeds of a sale? Are you truly ready to retire and pursue other interests?
  • Take a rational view of the business as part of your portfolio: Do not ignore the personal impact a sale would have on your finances, lifestyle and standing in the community.
  • Your business is likely one of the more risky investments you have
  • As you move closer to retirement you should ensure that you remove risk from your balance sheet: The unexpected can happen and typically does.
  • Valuations are down significantly: Not likely to return to where they were in the near future. PV of selling in 5 years is $33.7MM or simply put, for the risk of operating your business you would be indifferent between getting $91 MM in 5 years vs. $33.7 MM today.
  • Recovery is likely to be slow
  • Taxes are rising
  • Waiting for a better pricing environment may not yield the results you think: If you sold today and invested in a basket of less risky assets growing at 8%, you have $80.8MM in 5 years – around $10MM less than selling in 5 years, but at a much lower risk threshold.

In the next posting I will review the second part of Mr. Hogan’s presentation.

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